European Open

USD continued to see a bid amidst rising yields in most tenors as well as a sell-off in equities during the Asian session. US treasuries saw yields continue to tick higher as well. However, RBNZ took the headlines today, with an expected 0.25% hike to 0.5% for NZD, although flow dynamics and a higher USD contributed to the Kiwi declining 0.55%, alongside AUD, which declined 0.47%. KRW remained weak, with the spot edging past 1190. Oil retained its strength during the Asian session.

USD continued to see a bid against the rest of the G10 complex during the Asian session, following a similar NY session. US treasuries were offered across all tenors during Asian hours. Noticeably, equities saw declines during Asian hours following a pickup in growth stocks during NY hours. KOSPI, NKY, HSI and ESA were all in the red in the Asian morning.

US September ISM Services comes in line with estimates at 61.9 (59.9 expected; 61.7 prior). Improvements are seen throughout the bulk of components. Note favorable readings in sub-prints such as business activity (62.3), new orders (63.5), and inventory sentiment (46.3). Meanwhile, prices paid continues to tick higher to 77.5 (75.4 prior) alongside a mild decrease in employment to 53.0 (53.7 prior).


FX Flows

The Reserve Bank of New Zealand did what most of us expected, raised official cash rate to 0.5%. RBNZ said current further removal of stimulus expected over time, future moves contingent on the medium-term outlook for inflation and employment. The central bank noted that current Covid-19 related restrictions have not materially changed mid-term outlook for CPI and employment. Price action was disappointing, spot NZDUSD jumped from 0.6957 to 0.6980. The pair erased gains and traded lower. Our trader Jon believes that weak New Zealand stock index could have reversed the NZD. Another reason is profit taking in NZDJPY.

AUDNZD had a better price action, a very quick move to 1.0441 and then bounced back. Some said the disappointing move in yield spreads of AU-NZ bonds could have contributed to the FX, attracted profit taking. AUDUSD price action was muted, mostly led by cross play. Offers in AUDUSD mentioned above 0.7315, bids ahead of 0.7250, similar to yesterday.

USDJPY was bought from the Tokyo open, no particular reason, we think it was driven by positive start in US equity futures, Nikkei Index and higher UST yield. Things started to change after RBNZ, Nikkei erased earlier gains and turned negative. USDJPY did move lower but minimal. Our trader Jon said the demand out of Japan has been strong despite the performance of equity index, thinks we head higher. Plenty of 111.00 option strikes due this week, large one on Friday with $2.25bn.